Industrial Services Of America (NASDAQ:IDSA)

Two seperate 13D filings in past 6 months. The purpose of the share purchases is for investment in a leading scrap recyler. The filer believes that IDSA management is doing an excellent job navigating
through a difficult stainless steel demand environment. IDSA's valuation has been depressed by temporary earnings pressure, an uncertain macro picture, equity market volatility and a lack of sponsorship.

Source

Private investor increases ownership stake to over 5%. See 13D/A

The purpose of the share purchases is for investment in a leading scrap recyler.
The filer believes that IDSA management is doing an excellent job navigating
through a difficult stainless steel demand environment. IDSA's valuation
has been depressed by temporary earnings pressure, an uncertain macro picture,
equity market volatility and a lack of sponsorship.


Future purchases and sales of IDSA common stock are possible.
The filer hopes to work with IDSA's management and Board of Directors
to increase shareholder value and raise the company's visibility with
prospective investors.  Also, the filer will encourage certain members
of the Company's Board to make a more significant investment in the
Company's shares with personal funds in order to align their interests
more directly with the interests of shareholders. If these purchases donot take place relatively soon, filer intends to introduce a measure for
shareholder vote that would require minimum levels of stock ownership for
Board members.

Removing IDSA from the GeoSpeicial List 

• Added to the GeoSpecial list March 28, 2011 @ $11.30

Catalyst: Strong 2010 fourth quarter and year end reuslts
Current road block: Weak outlook for scrap metal prices. After two strong quarters of EPS growth the company had set back in Second Quarter 2011 which could carry into next few quarters because of scrap metal pricing.

We will keep watching the IDSA story. While this round was not as productive for us, we have logged in big gains in the past. Pleas see May 10, 2010 research note.

Current Price: $6.41
Peak performance: Reached a high of  $17.35  on August 18, 2010

For the three months ending June 30, 2011:

• Total revenue was $65.0 million in the second quarter of 2011, compared with $92.8 million in the second quarter of 2010.
• Net income was $312,576 (basic and diluted earnings of $0.05 per share) in the second quarter of 2011, compared with $2,347,200 (basic and diluted earnings of $0.36 per share) in the second quarter of 2010. Basic and diluted weighted average shares outstanding were 6,789,917 and 6,825,108 respectively in the second quarter of 2011 and were 6,462,513 and 6,489,908 respectively (split-adjusted) for basic and diluted shares in the second quarter of 2010.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2011 was $2,166,282 compared with EBITDA of $5,117,653 for the second quarter of 2010. (See attached reconciliation.)

• Net income and earnings per share were adversely affected by a fee of $500,000 in the second quarter resulting from the cancellation of purchase contracts as market demand for stainless steel slowed significantly.

Brian Donaghy, President and Chief Operating Officer of ISA stated, "We saw a dramatic change in stainless market conditions during the second quarter of 2011. Virtually every stainless scrap provider, including ISA, saw demand dwindle as a result of the world-wide decrease in demand for stainless steel and other nickel-based scrap. We believe that consumers have worked down their inventory levels, and we are optimistic that demand will soon rebound.

“We took advantage of continued strong ferrous and non-ferrous scrap market conditions during the quarter and substantially increased our shipments in these commodities. This helped offset the downturn in our stainless business. However, like many other scrap companies, we experienced some pressure on margins as we had to pay higher prices to fill customer orders.

“We also used the seasonally soft summer to refine operations. We undertook a thorough review of all of our personnel, streamlining, hiring and reallocating certain employees to areas where they can make the most impact. This included bolstering our Alloys division with industry veterans who have extensive supplier relationships and who can help develop our Alloys team. We feel very good about the team we have in place today, just in time for the return of more favorable market conditions.”

Harry Kletter, Chairman of the Board of ISA, stated, “After spending over 60 years in the industry I can tell you that the scrap business is in the early stages of growth but there will be continued consolidation. I envision a hand full of major companies that will partner up with mills which will dominate the industry, which ISA plans to be involved with. The company will continue to look for strategic relationships and other alternatives during the next few years to enhance stockholder value.

“As the economy improves, the scrap industry will continue to grow and we will continue to expand our presence. The recent investment we made in the stainless and alloys operations have given us the ability to further grow and diversify. As the world demand for scrap continues to increase, we plan to take advantage of the many opportunities ahead. During the past two years we have had tremendous growth and now our current focus is to become a much more efficient operation with increased margins.”

First Quarter Results:

• Total revenue was $106.2 million in the first quarter of 2011, compared with $74.2 million in the first quarter of 2010.
• Net income was $2,166,782 (basic and diluted earnings of $0.31 per share) in the first quarter of 2011, compared with $1,763,264 (basic and diluted earnings of $0.27 per share) in the first quarter of 2010. Basic and diluted weighted average shares outstanding were 6,885,170 and 6,928,448 respectively in the first quarter of 2011 and were 6,449,522 and 6,487,650 respectively (split-adjusted) for basic and diluted shares in the first quarter of 2010.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of 2011 was $5,229,971 compared with EBITDA of $4,132,001 for the first quarter of 2010. (See attached reconciliation.)

  Chairman of the Board Harry Kletter commented, "ISA had another record quarter, with revenue up 43% over last year’s first quarter. Even though some of this increase was from higher commodity prices, our unit volume was up 37% over the first quarter of 2010. Our earnings also posted strong growth, increasing 23% over the first quarter of 2010. These results are particularly impressive when you consider that they surpass the record results we posted in the first quarter of last year."

Fourth Quarter Highlights:

• Total revenue was $99.5 million in the fourth quarter of 2010, compared with $37.7 million in the fourth quarter 2009.
• Net income was $2,019,524 (basic and diluted earnings of $0.30 and $0.29 per share, respectively) in the fourth quarter of 2010, compared with $1,547,225 (basic and diluted earnings of $0.24 per share) in the fourth quarter of 2009. Basic and diluted weighted average shares outstanding were 6,790,026 and 6,837,185 respectively in the fourth quarter of 2010 and were 6,429,438 and 6,460,428 respectively (split-adjusted) for basic and diluted shares in the fourth quarter of 2009.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) for the fourth quarter of 2010 was $4,027,670 compared with EBITDA of $3,724,852 for the fourth quarter of 2009. (See attached reconciliation.)

Chairman of the Board Harry Kletter commented, "2010 was another great year. Our sales have grown at a compound annual rate of 85% per year for each of the last two years, increasing from $100 million in 2008 to $181 million in 2009 to $343 million in 2010. This has occurred during one of the most difficult economic times since the 1930’s. We ended 2010 with a strong balance sheet, including a current ratio of 3.6-to-1 and low leverage.

For the second quarter of 2010:

• Total revenue was $92.8 million in 2010, compared with $39.1 million in 2009 primarily due to an increase in the volume of ferrous shipments of 164.0%. (Shredder operations began July 1, 2009.)
• Net income was $2,347,200 (basic and diluted earnings of $0.36 per share) in 2010, compared with $922,210 (basic and diluted earnings of $0.17 per share) in 2009. Basic and diluted weighted average shares outstanding were 6,462,513 and 6,489,908 in 2010 and 5,477,844 for both in 2009 (adjusted for split).
• Earnings before interest, taxes, depreciation and amortization (EBITDA) for 2010 was $5,117,653 compared with EBITDA of $2,365,976 for 2009.

“The quarter ended with much stronger than expected orders, but we continue to be cautious as certain economic indicators suggest that the current recovery may be slowing."

We began tracking the IDSA story on February 8, 2010 @ $10.00.  On March 22, 2010 we coded IDSA as GeoSpecial @ $13.70 after the company reported strong fourth quarter results:

More importantly, the company issued huge first quarter guidance:

Based on actual results and projected trends, the Company said first quarter revenues for 2010 are expected to be in the range of $65 million to $75 million.

We are speculating that the quarter is in the bag as the guidance was issued in the final month of IDSA's first quarter.

The company reported first quarter 2009 EPS of $0.18 on $24.3 million in revenues.

A slight snag does exist:

• During the conference call the company issued wide full year 2010 net income guidance of $6.0 to $12.0 million. On the low end this only implies 14.0% growth.
  
• The company did not issue EPS guidance. Some investors may infer this to mean that the company may intend to offer shares at some point in 2010.

Source: Business Wire (March 22, 2010)